Financial success or failure of an accountable care organization (ACO) will depend on meeting rules-based budgets set by the Centers for Medicare and Medicaid Services (CMS). The ACO will need to demonstrate quality as well as reduce spending below targets.

Will ACOs achieve these efficiency requirements? Improving quality will create some savings but probably not enough to generate shared savings payments to the ACO. Furthermore, the financial targets will be harder to accomplish for providers already operating efficient systems. Actuarial models can help potential ACOs assess the financial risk and make the right decision as they contemplate whether to establish an ACO.